Following on from my previous blog, there was one element I overlooked, that of the cost of upgrading the transmission network to incorporate new electricity from renewable sources.
OFGEM have said the total cost over 10 years will be £32 billion pounds. This will be the total investment that will have to be raised by the transmission grid companies, for example by raising debt. In order to help service the cost of this finance the consumer will pay £6 per household over a 10 year period which equates to £1.5 billion pounds. Businesses will also pay £1.5 billion towards this cost making a total contribution of £3 billion.
It's worth pointing out that paying for the transmission network through our electricity bills is nothing new. We currently already pay a levy on our bills for that very reason.
The issue of renewable subsidies has become more complicated since the spending review last week. It had until the review been assumed that all forms of renewable energy generation in the future would be funded by levies on our electricity bills - hidden taxation if you like.
As an example, the government have confirmed that companies across the UK will be asked to bid for grants at the end of 2010 in order to build 3 carbon capture demonstration plants. Until now it had been assumed that this would be funded by another fuel bill levy, but the government have now said that this may come from central government funds instead. A final decision on this will be reached in Spring 2011.
But back to the issue of the rising cost of energy bills to pay for renewable subsidies. I spoke to the Department of Energy and Climate Change (DECC) last week about this very issue. They estimate that the average gas and electricity bill is £620 and £500 respectively. By 2020, they estimate that the increase in gas prices due to government carbon reduction policies will be 18%, and electricity prices will be 33%.
However, they say, the impact on our energy bills will only be £13 a year, or a 1% change. The discrepancy with my figures is, according to them, 'because bills are a combination of prices and energy usage and therefore include the impact of a range of policies that improve energy efficiency by helping households reduce energy consumption.'
The notion that most of the costs associated with reaching our renewable energy generation targets by 2020 will effectively be met by better insulating our homes and being more energy efficient may take some selling to the general public.